UK banking IT spend to rise

7 December 2007

UK banks are set to spend more on software and IT services (SITS) over the next few years, according to Pierre Audoin Consultants (PAC).

While some industry experts expect the sector's IT investment to be negatively impacted by recent issues surrounding the US sub-prime mortgage market and the tightening credit crisis, PAC expects the core SITS market to grow at a compound annual growth rate of 7.7 per cent between 2007 and 2011, with most momentum stemming from the outsourcing business.

However, banks will be seeking to do more with the same amount of resources and money, and this is likely to translate into increased demand for offshoring, pushing business in the business process outsourcing (BPO) space. BPO will be especially in demand for horizontal processes such as finance and accounting and human resources, as well as more core areas like mortgage and loans processing as banks seek to lower costs. PAC predicts that Single Euro Payments Area (SEPA) payments processing will also be thrown into the spotlight, as some banks will find maintaining this area in-house unprofitable.

Recent market risk exposure also means that IT services providers will face tightening margins. For the larger providers, margins will be further pressured by the rising trend of multi-sourcing and offshoring, which will force them to settle for smaller contracts in terms of size and volume. PAC also notes that cost pressure will increase from Indian players such as TCS, Cognizant and Infosys, which are pushing to increase margins and growth in the UK banking sector through building competencies around higher value service offerings, and focusing efforts on increasing their consulting and domain expertise.